When 24-year-old Tim Eippert bought MC Sign Co. in 1994, it was an $80,000 business that he financed for $4,000 a month. He started down the dealmaking path in his mid-30s and was the youngest business owner in his CEO peer-to-peer group. But he realized if you start thinking about selling at 55 or 60, you’re 10 or 15 years behind.
Today, MC Sign has annual revenue of over $100 million and employs about 280 people. Eippert has sold the company to private equity three times in the past 10 years; his first sale was at age 38.
“We talked with both strategic and financial buyers, and they kept coming back with questions. ‘Why is this guy selling? Look how young he is.’ That was one of the bigger obstacles; why would somebody that age do that?” says John F. Herubin, managing director at EdgePoint Capital.
In a discussion moderated by Herubin, Eippert’s case study was dissected at ASPIRE 2018 by Eippert, Jeffrey J. Conn, member in charge, Pittsburgh office, Clark Hill PLC, Christopher Hepler, director of corporate development, Wabtec Corp. and Dennis G. Prado, managing partner, Main Street Capital Holdings LLC.
Here are their thoughts.
“It’s purchased more frequently on the buy side. It’s easier to underwrite on the buy side because the buyer typically will have reports done — the quality of earnings report, a due diligence memo, etc. On the seller side, that’s not available. Eighteen percent of buy side insurance has claims brought against it over the last couple years, 29 percent on the sales side.
I don’t think will be surprising to anybody that the most breached rep that caused claims is the financial statement rep. The second most breached rep was the compliance of laws rep.”
—Jeffrey J. Conn
Make a long-term commitment
“If you are an entrepreneur and you do go down the PE route, you’ve got to be ready. Once you sell to PE, you’re probably in the PE game for the rest of your life.”
“One thing that’s changing in the last two, three years is the due diligence phase, the documentation phase. When you get done with the management presentation, you select the buyer. It used to be a 90-day period to close, and now it’s 30 to 45 days. That’s the market right now, so you have to move very fast.”
—Dennis G. Prado
You can’t overprepare
“All three times I’ve done it, it really is a second job. If you work 40 hours now, you’re going to work 80.”
“Make sure you avoid spooking the buyer. If you’re prepared, obviously it will create credibility for you with the buyer. And it’s nice to know that you know what those issues are that will arise during the process.”
—Jeffrey J. Conn
“You just don’t want surprises as a buyer, and the only way to do that is to prepare. So surround yourself with good people.”
“You have to find those two, three or four people that you trust, that have done it, that have great experience that you can lean on. It’s an emotional ride when you’re selling a business that you own 100 percent of, and you’re trying to pick a partner from one management meeting and three dinners and maybe four times at your office.”
“You shouldn’t be focusing on just maximizing value. Talk to former CEOs/owners who have sold to that private equity firm and strategic buyer and ask them what life is like post sale. For an extra 10 or 15 percent of the proceeds at close, it’s not going to be worth it if your life’s going to be miserable for the next five or six years.”
—Dennis G. Prado
“From the strategic side, alignment of vision is key. Where do we think about taking the business? Where does the owner think about taking the business? Get alignment around that in the process, because if you don’t have that, it’s going to be an ugly marriage.”
“The financial piece is really important, but you can’t turn the business off. I’m still the president and CEO the next day, and I have to live up to what I just told (the PE firm). They have a huge investment in me and my team, and I have a duty and obligation to them — and we’re all alike because we’re all investors in the business.”